The Hindu battles to transform

By Anupama Chandrasekaran (anupama.c@livemint.com)

Operation Kamadhenu was supposed to help Kasturi and Sons Ltd (KSL) sort out its external problems related to growth and competiton, and internal ones arising from the dynamics of being a family-owned and family-managed enterprise.
Instead, the consulting assignment undertaken by McKinsey and Co. last year may have only served to amplify the discord at the company, which publishes The Hindu and The Hindu Business Line newspapers that compete with the Hindustan Times and Mint, published by HT Media Ltd, in some markets.

McKinsey, which refused to comment for this article citing client confidentiality, earned Rs.8 crore for the assignment, Mint learns that it suggested professionalizing the board as well as the business and editorial management, although this didn’t immediately disqualify a family member from being either a senior editor or a senior executive in the company. Currently, all key editorial and managerial positions are held by members of the Kasturi family.

Members of this large family were already at odds when McKinsey entered the scene in the middle of 2010.
“Some of us thought McKinsey’s entry was ill-timed,” says N. Murali, who was stripped of his powers in a March 2010 board meeting, but reinstated at the end of the year after the Company Law Board (CLB) ruled in his favour, although it didn’t scrap other appointments made in the same board meeting that effectively diminished his powers. “Only if there is normalcy can consultants do something.”

Despite being one of India’s oldest and most respected media companies, and the publisher of two dailies considered newspapers of record by readers, especially those in the southern part of the country, KSL has seen three significant family fights in the past two decades. The latest one, the fourth, threatens to divide the group and stymie its chance to raise private equity (PE) funding or file an initial public offering (IPO) to diversify, double revenue and log 10 times as much profit, internal documents obtained by Mint show.

“Disputes need to be settled amicably and when families wash their dirty linen in public, prospective investors may stay away,” says Chitrangda Kapur, a research analyst with Mumbai-based money management firm Angel Broking.

Besides hurting its struggle to counter competition from The Times of India in Chennai, the internal strife weighs on the existing troubles of the group, whose general newspaper The Hindu has the third largest English readership in the country behind The Times of India and the Hindustan Times, as expansion slows.
While print media revenue in India grew at 10.4% in 2004-09 to an estimated Rs.16,000 crore, it’s ascent has slowed. Industry revenue is likely to touch Rs.23,050 crore in 2014, signalling a compounded average growth rate of 7%, according to a PricewaterhouseCoopers (PwC) 2009 report.

“The perception is that magazines and newspapers are increasingly going to go online, so people are hesitant to make investments in this space,” says Timmy Kandhari, who leads PwC’s media and entertainment consulting.

Founded in 1878, Kasturi and Sons became a partnership run by Kasturi Srinivasan and Kasturi Gopalan, grandfathers of the warring generation. It was incorporated as a private limited company in 1940 and went on to offer an equal 25% representation to four descendant families of the Kasturi brothers, according to CLB documents filed last year. Currently, the 12-member board comprises three members from each family.

In the late 1980s, The Hindu, nicknamed the Maha Vishnu of Mount Road on account of its strong editorials, faced its first stress test when Murali’s elder brother N. Ram was forced into an involuntary exile of sorts by The Hindu’s editor G. Kasturi due to editorial differences on the coverage of the Bofors scandal. The victory was pyrrhic, with Kasturi himself being forced to resign too and hand over the post of editor to N. Ravi, the younger brother of Ram and Murali. In 2003, Ram returned after the board ordered his reinstatement (and this time around, Kasturi voted for Ram).

Ram didn’t meet this reporter despite repeated requests for an interview.
In 2010, Murali, and, subsequently, Ravi, accused Ram of reneging on an informal commitment to resign in May 2010 when he turned 65. During a subsequent board meeting, Murali was eased out, which is when he approached CLB, which ruled that he should continue till August 2011, when he would retire.
“Whether it is a family or professional business, people at the top don’t let go because of their ego,” says an independent consultant close to the Kasturi family, who didn’t want to be named. “There is a power and image associated with the position apart from income and wealth.”

It was in this context that McKinsey entered the group’s Mount Road headquarters.
The consulting firm’s 2010-11 study of KSL’s business was codenamed Kamadhenu—the name of a sacred cow in Hindu mythology that could fulfil any wish of her owner. After about six-eight months of study, Mint learns that McKinsey recommended a governance model with a nine-member board, including at least three non-family members. It also advised KSL to enter the education business and that of online classifieds. These strategic changes were expected to help take The Hindu’s circulation to 2.3 million in 2016 from 1.6 million in 2011, while at the same time shrinking the company’s dependency on the print media business to 84% from 100%, according to documents seen by Mint. The consultancy prophesied a 2.5 times jump in revenue in five years to Rs.2,500 crore, leading to a ninefold jump in profit after tax to Rs.320 crore.

When McKinsey wrapped up its study at the newspaper group earlier in 2011, it requested the board to sort out internal differences and reconnect if needed, according to a company source. Thereafter KSL’s board—which meets around the 20th of each month—started discussing succession issues keeping McKinsey’s recommendations in perspective.

“What also emerged clearly in Project Kamadhenu was that KSL would not be able to generate internally the funds required to meet the competitive challenges, and finance expansion and growth,” show minutes of a 16 March board meeting that paraphrase managing director K. Balaji’s comments.
“Funds would have to come from an outside investor (PE or strategic) or through an IPO,” the meeting record shows. “In either case, the restructuring of the management would be a pre-condition. The infusion of funds could not be put off for too long; we have lost a lot of time.”

On 16 April, Ram and six board members, who support him, proposed the appointment of a professional non-family journalist Siddharth Varadarajan in his place. Varadarajan is the national bureau chief of The Hindu. At the same meeting, the seven board members voted in favour of the current editorial directors stepping down from their posts.

Five people opposed this move—Ravi; managing director Murali; joint editor Nirmala Lakshman; executive editors Malini Parthasarathy and Nalini Krishnan. A few days later, Ravi sent out an email expressing his angst at the decision, and citing several instances under Ram’s leadership when the editorial integrity of the paper had been compromised.

The individuals and families represented by the five opposing directors own 40% of the shares in the company and insist that the “ordinary resolution” related to editorial changes, which will be finalized through a vote in a 20 May extraordinary general meeting, should be turned into a “special resolution”.

An ordinary resolution can be passed as long as stakeholders holding more than 50% of the shares support it. A special resolution needs a thumbs-up from holders of at least 75% of the stake, according to the Companies Act of 1956. In private limited companies, a “special resolution” is seldom used; it is largely restricted to events such as a merger or closing down of business.

The opposing directors have also hinted at taking legal action, which could mean filing a civil suit to influence an injunction that will stop the resolution from being passed, a corporate lawyer said. The last option would be for dissenting shareholders to walk out with a share of the business by splitting the 14 editions of The Hindu among the two parties similar to the 1991 split of The Indian Express Group.
That may not be easy.

“The Indian Express was a more national newspaper and so it was easier to split it geographically and I’m not sure it will work in the case of The Hindu,” says Chennai-based Senthil Ramamoorthy, a partner at law firm Dua Associates, pointing to the Chennai-based Hindu’s largely south-based readership. “Ultimately, these kinds of disputes cannot be resolved in a court of law. Parties have to sit on both sides of the table and arrive at some kind of a compromise.”

Mint learns there have been efforts to have former ICICI chairman N. Vaghul and Mahatma Gandhi’s grandson and former West Bengal governor Gopal Gandhi as mediators, but nothing has materialized thus far.